Enables greater speed, low transaction costs, and features higher capacity for better interoperability and decentralized user experience.
The settlement chain can be thought of as a digital
ledgerwhere users' transaction details are recorded. Also, in order to set down the liquidity on each chain, this layer in the whole ecosystem is indispensable, supporting EVM-compatible (short for Ethereum Virtual Machine) smart contracts.
First off, a settlement refers to a payment/transaction that is final and delivered. In the industry of cryptocurrencies, a transaction can only be regarded as a settlement after it is stored within the blockchain, where the traded cryptos cannot be rolled back.
Next up, EVM compatibility is a good stepping-stone in solving the issue of cross-chain interoperability. Ethereum Virtual Machine can also be called a “distributed state machine,” which helps keep track of the blockchain’s state that is changing with transactions constantly.
The Ethereum network was the first to deploy smart contracts. That being said, owing to its size and the enormous number of traders in the monolithic blockchain world, it has reached a point where its scalability, low transaction speed, and high gas fees have all become the pressing issues. So, by supporting EVM-compatible smart contracts that motivate code execution in an environment similar to EVMs, XY Finance no longer needs to build solutions from scratch. On the contrary, our methodology facilitates faster transactions, higher capacity, and lower gas fees. It also significantly lowers energy consumption per transaction.
And on the settlement chain, we will deploy a smart contract to record the pool token balance on each chain and also keep track of the liquidity balance of each user, which makes the settlement chain an arbitrator. The following flow chart demonstrates how different chains interact with the settlement chain and users.
How the settlement chain interacts with the supported chains
To smooth the process of decentralized transactions and to ensure the mechanism function normally, we have several validators set to keep information on each chain updated constantly. They are used to check the validity or syntactical correctness of a fragment of code or document. Not only will the validators help verify whether our web pages are correctly coded, but they are also furnished with a consensus algorithm to prevent malicious attacks, keeping the network security and efficiency up to standard 24/7.
When users deposit Y Pool-supported tokens (i.e. USDT or USDC) into a chain, they will receive
xyUSDT/xyUSDC(obviously depending on what stablecoins they put into the pool) as proof of deposit or their Y Pool shares. In contrast, as users withdraw the tokens from a chain, they will return
xyUSDT/xyUSDCas their Y Pool shares, as ➀ and ➂ in the following illustrations.
Validators of Y Pool will thus interact with the settlement contract to update the balance of the corresponding chain as well as that of users, as ➁ in the following illustration.
As time goes by, users' deposits will pay off. They may choose to withdraw their funds using
&XY) in return, and that's where the settlement contract calculates or "settles" the corresponding quantity of reward distributed to users, as ➁ shown below.
User Withdraw Liquidity
If users deposit and then withdraw only within a short period of time, then a legal fee will be incurred.